Information-Theoretic Approach to Financial Market Modelling
Mathematical Finance
2026-02-17 v1 Information Theory
math.IT
Abstract
The paper treats the financial market as a communication system, using four information-theoretic assumptions to derive an idealized model with only one parameter. State variables are scalar stationary diffusions. The model minimizes the surprisal of the market and the Kullback-Leibler divergence between the benchmark-neutral pricing measure and the real-world probability measure. The state variables, their sums, and the growth optimal portfolio of the stocks evolve as squared radial Ornstein-Uhlenbeck processes in respective activity times.
Keywords
Cite
@article{arxiv.2602.14575,
title = {Information-Theoretic Approach to Financial Market Modelling},
author = {Eckhard Platen},
journal= {arXiv preprint arXiv:2602.14575},
year = {2026}
}
Comments
35 pages, 3 figures